Wednesday, May 26, 1999 | 10:55 a.m.
What a difference seven months, to say nothing of a 333 percent increase in a company stock's price, can make.
The locale was the same, but Station Casinos Inc. shareholders were a lot more upbeat Monday than they were at their last annual meeting at Sunset Station.
Stockholders offered vociferous praise and several rounds of applause after Station executives gave an optimistic appraisal of the company's outlook and explained the turnaround in its stock price Monday.
It was just before the locals-oriented casino company's annual meeting last Oct. 27 that Station's stock was languishing at a 52-week low of $4 a share.
Wall Street's fears of an oversupply in Strip room inventories had prompted a bear run in all casino stocks, and Station's failed $1.5 billion merger with a real estate investment trust had exacerbated the impact on its price.
But Station executives knew their market niche better than jittery investors, and launched a multi-faceted program to solidify their dominance of the locals gaming business, strengthen their balance sheet and tell Wall Street exactly what it was missing.
The result? Record revenue and cash flow from all its properties, a sharp reduction in debt and a better appreciation from investors on just what Station was doing. Its stock closed at $17.3125 a share Monday -- more than triple what it was last fall -- but retreated Tuesday to $16.81.
Station Chairman Frank Fertitta 3rd and Chief Financial Officer Glenn Christenson outlined the factors leading to the upsurge and said there's more to come.
"I think there's a substantial upside from the current stock price because we have the best story in gaming today," Fertitta said. In fact, when one shareholder asked if Station would consider a takeover offer from the world's biggest gaming company, Park Place Entertainment, Fertitta replied:
"At this time, the trends are so strong I don't know that Park Place or anyone else could offer us a fair value for the stock.
"I'm not sure I'd want to own Park Place paper rather than Station," he said. "We are the best pure growth company in gaming."
What makes company executives and Wall Street analysts so bullish on Station is that it has completed its aggressive four-year capital spending program in Las Vegas and Missouri and is now poised to generate substantial amounts of free cash flow. Station has four big hotel-casinos in Las Vegas and assorted smaller operations here; and two big properties in Missouri.
Last week, David Anders of Credit Suisse First Boston noted that while the investment community normally prefers growth companies to invest in new, high-yielding projects, the gaming industry is maturing.
"If attractive investment opportunities don't exist in mid- to late 1999," Anders said, "investors would be better served by casinos executives taking capital out of the industry either through share repurchases or, in the cash of highly leveraged companies, debt repurchases."
That's precisely what Station is doing.
Rather than spending that money to develop new properties, Christenson said, Station will use it to pay down debt, make strategic acquisitions or buy back shares, all of which could strengthen the company's stock price.
Since last year, Station has already cut its debt-to-cash flow ratio to 4.7 to one from 5.8, and expects to be down to a 4-to-1 ratio within three to six months, he said.
"We're now on a run rate to do about $80 million of free cash flow annually," he said. With 43 million shares outstanding, that's about $1.86 of free cash flow per share.
Christenson told shareholders that because Station stock is traded at a lower multiple of free cash flow than major Strip operators such as Mirage Resorts and MGM Grand, there's potential for significant stock appreciation.
Station's cash flow from Las Vegas and Missouri is less volatile than that of most Strip casinos because it's generated primarily from slot play rather than more risky table games, he said. In addition, locals markets aren't impacted by air-capacity issues or economic turmoil in countries that generate significant table-game play on the Strip.
Station's Las Vegas and Missouri casinos are poised to benefit from strong demographic trends, favorable supply-demand dynamics and the company's dominant position in the locals' markets, Fertitta said.
He said the population in Las Vegas -- "the best locals' market anywhere in the world" -- is expected to double within 12 years. Station generated 42 percent of the business from that market last year and more cash flow than all other locals-oriented casino operators combined, he said.
While Station executives are keeping watchful eyes on developments in Mississippi and elsewhere, Fertitta said the company will focus on "a lowest-risk, highest-return investment strategy" that is centered here.
"I think we have five to 10 years of continued growth in Las Vegas," he said, noting the locals market here produces the third-highest gambling revenues in the country, trailing only the Las Vegas Strip and Atlantic City.
In St. Louis (St. Charles) and Kansas City, where Station operates the fourth-largest casino in the United States, the company has seen strong growth trends that are expected to continue, Fertitta said.
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